How to avoid scam lenders?

Question

Hello, I’m planning to do my first fix-and-flip early next year, and I’m curious about the best way to properly vet lenders. How do you determine whether one lender is better than another beyond just the terms they offer?
Thank you!

Erik Estrada · Answer

It comes with experience, but most rockstar lenders will ask you multiple questions/documentation before they send you terms. They will also do their own due diligence, referencing zoning codes, valuations, etc..

Experienced lenders do not like to waste time. If the deal works and you are honest/communicative, you will have a pleasant experience.

If you call around and lead with, "how much do you charge? & what are your rates" to try to narrow down who has cheaper pricing, you will inevitably get baited and switched.

Instead, gather a presentation of your deal, and send it to lenders that have reviews, licensing, and an online presence. Build a relationship, instead of working with the cheapest. It will cost you more in the long run...

AJ Exner · Answer

Bigger Pockets actually has a pretty decent method to find reputable lenders through their Building Your Investing Team banner

https://www.biggerpockets.com/business/finder/lenders

Still gives you a chance to sift through some groups that have already been vetted a bit, and it removes some of the regional barrier that there might be with other groups to keep you from wasting time.

Ravi Kaku · Answer

Great question. I think a lot of first-time investors focus on the interest rate and points, but there are several other questions that can have just as much impact on your project.

Here are some things I'd ask any hard money lender:

• Do you charge prepayment penalties?
• How does your draw process work?
• Are there draw or inspection fees?
• How quickly are rehab draws funded?
• Do you charge interest on undrawn rehab funds?
• Are there wire, servicing, or payoff fees?
• How are rehab funds held and disbursed?
• What happens if I need an extension?
• How much experience do you have funding fix-and-flips?

I've seen investors save thousands by looking beyond the headline rate. A lender with a slightly higher rate but faster draw funding, fewer fees, and a smoother process can actually be less expensive over the life of the project.

For a fix-and-flip, I think reliability and transparency are every bit as important as pricing. Delayed draws, unexpected fees, or last-minute changes can cost far more than a small difference in interest rate.

Alyssa Marquez · Answer

Trustworthiness trumps rate for me: If a lender had a good track record of closing quickly, an easy process for requesting draws, straightforward fees, and open lines of communication with me, I'd prioritize them even over the best rate. I'd also seek the recommendation of other real estate investors regarding how easy or difficult the lender was to deal with during their rehab loan – in particular, if they were speedy with funding draw requests and dealt with unforeseen problems smoothly. After all, a slightly higher interest rate is worthwhile if the lender ensures your renovation stays on time.

Andrew Postell · Answer

@Joseph Cheley I saw you posted in the other forum too but thought I would comment here incase others read it here.  As mentioned, there are referral links above and this is a super important question and it doesn't just apply to lenders.  How do you know that a contractor is any good?  An electrician?  A title company?  Anything?  Even if they do have 20 years experience...how do you know really?  And while nothing is foolproof the most consistent method of finding good vendors is relying on OTHER real estate investors that have worked with those vendors.  This is why we network with other real estate investors - kind of like what you are doing here!

So, let's try some local real estate meetup groups. Meetup.com is a good resource for those but some of the groups will also post here on Bigger Pockets Marketplace too. Even facebook might have some good local groups for you. Some of those facebook groups have thousands of members. The priority is consistent recommendations from active investors.  Oh, eventbrite too. But post locally for this. That’s the best bet.

Diego Alvarado · Answer

Hi @Joseph Cheley

I haven't personally encountered a scam lender, and I certainly hope I never do. My vetting technique is simple: I verify that they aren't a "secret" lender. I research the company they work for, check reviews to ensure their name has a legitimate online presence, and—in the best-case scenario—I rely on strong referrals.

However, finding a lender isn't the first step in starting your fix-and-flip journey. You should begin by building your network. This means finding a knowledgeable agent, getting contractor referrals, connecting with other investors, and ensuring your finances are spot on.

Let's break these down one by one:

• Knowledgeable Agent: For your first few deals, you must use an agent or have a very experienced mentor to consult. I have seen too many investors try to save on commission fees only to lose money on their first deal.
• Contractors: It is vital to have at least three contractors you can get quotes from immediately. This business moves fast, and managing renovations can be overwhelming if you aren't prepared.
• Finances: Every lender will verify that you have funds in your account. You need to be ready to cover the required reserves to get final approval.

Frankie Vozzi · Answer

Joseph, great question, especially as you prepare for your first fix-and-flip. Make sure they’re a true lender (not a broker), request a clear term information with no surprise fees, confirm they regularly work with first-time flippers, and ask how their draw process functions. At Branch Lending, we prioritize transparency, I sent you a Dm, happy to connect!

Roberto Reyna · Answer

Hey Joseph. To avoid scams at all cost, I'd work with a hard money lender since they're established businesses who do hundreds of thousands of dollars in volume every month. Tough to be scamming when your reputation and business depend on transparency. There's a bunch of great one's here in Texas, and I actually just funded two deals up in Fort Worth and Azle. I'm happy to provide any insight!

How to avoid scam lenders?

Most Popular Reply